YAHAPALANA AND INDUSTRIALISATION Part 3
Posted on September 24th, 2018

KAMALIKA PIERIS

Prime Minister Ranil Wickremasinghe said that Sri Lanka’s economy is not properly focused and the time has come to change it. Our economy was based on borrowing, our trade is poor, agreed economists. The contribution of the industrial and manufacturing sector to economic growth has remained stagnant during the last two decades. Sri Lanka’s manufactured exports dropped from 33 percent in 2000 to 13 percent in 2017   Industrial activities contributed 27.6% of GDP in 2000 and only 29.7% in 2016.. In contrast, Bangladesh merchandise export earnings increased from 12 billion to 35 billion in the same period. Inability to remain competitive, lack of value addition and lack of sophisticated technology are the main reasons for this, muttered Yahapalana

We will revitalize the manufacturing sector by introducing a clearly defined industrialization strategy, said Yahapalana.  Sri Lanka should change from being an economy engaged in non-tradeable sector to a tradeable sector.

For decades, we have relied on the same exports products such as garments, rubber, and tea.  In the last 25 years, Sri Lanka has seen virtually no new export products. This is in contrast with other countries in the region such as Thailand, China, and Vietnam, where new product lines contribute significantly to the increase in overall exports. While Sri Lanka is still mainly exporting garments and traditional agricultural products, the other countries moved on to electronics and machinery. As a result, Sri Lankan exports have not been keeping up with the pace of economic growth.

Sri Lanka cannot remain competitive in the goods that the country is focusing on today. We should diversify our exports by adding value added goods and services. Thailand and Vietnam are exporting a more diversified range of high-value products such as automobile parts, machinery and electronics. We must also catch up. We must make changes if we are to strengthen the economy said Yahapalana. The country must export more.

Yahapalana plans to increase exports from the current level of about US$ 11 billion to US$ 28 billion by 2022. This will be achieved by an expansion in exports of both traditional exports like garments and rubber products, as well as newer ones. There will be a new export strategy with a new set of diversified exports.   Yahapalana has developed a National Export Strategy. This focuses six strategic areas: information technology, business process management, spices and concentrates, tourism, processed foods and beverages, boat building and electrical and electronic components.

Yahapalana plans to concentrate on the Asean region for customers. The economic dynamism of the future lies in this region, said Yahapalana. Sri Lanka must now start to cater to this market. The west is not forgotten, though. There is also lot of scope for us in the EU market. With GSP+, we have preferential access for 6, 000 products. Currently we are doing only a few. If we can expand our export portfolio by another 6-7 product varieties short-to- medium term, that will help said Yahapalana.

The Center for International Development (CID) of Harvard University, USA through financial support from the Open Society Foundations (OSF) is collaborating with the Government of Sri Lanka in improving Sri Lanka economy. Since late 2015, CID said, it has conducted applied research through its Growth Lab Program and action research through its Building State Capability Program on a broad range of issues related to economic growth and transformation in Sri Lanka. As of October 2017, the project is focused on work by CID’s Growth Lab in pursuit of three main objectives that have emerged from research to date: empowering exporters to compete globally, upgrading knowhow for export diversification and achieving dynamic and inclusive growth.

Harvard’s CID was working with the BOI and the Ministry of Development Strategy and International Trade to develop a ‘new products space’ for the country.   Five teams of experts are working with Harvard, all focused on issues relating to exports and FDIs..BOI staff has also been receiving training programmes conducted by Harvard University’s Centre for International Development, McKinsey Consulting and the World Bank Group.

Harvard’s Centre for International development in an undated statement admitted that Sri Lanka did indeed have achievements. Sri Lanka’s path to middle income status has been remarkable in several ways, the statement said.  Over the long-term, the country has managed consistently high GDP growth rates and strong outcomes in education, health and poverty reduction, despite facing a 26-year conflict. The end of the conflict ushered in acceleration in growth, with real annual growth rates in GDP per capita exceeding 7 percent from 2010 to 2012. However, between 2013 and 2016, the rate of growth slowed down.  It was below 4%. So a new approach to the economy is now necessary.

This new approach would be provided by their   Messiah, Ricardo Hausmann. Director of the Center for International Development and Professor of the Practice of Economic Development at the John F Kennedy School of Government, Harvard University. Hausmann has been bouncing in and out of Sri Lanka since Yahapalana came to power.  For instance he visited BOI in May 2018 and addressed staff of the Board. He was accompanied by other staff members from Harvard University.

 

Hausmann agrees that Sri Lanka has achieved some successes in diversifying her exports, is in areas such as logistics, finances and tourism said Hausmann.  Also that  Sri Lanka  is  not a competitor of some of the low end countries in the area of manufacture,  Sri Lanka is in a ‘middle position’, which means it must moves to  higher level exports.

 

Hausmann observes that in the last 4 years Sri Lanka‘s economic growth was slow,.  This is contrast to other Asian countries, whose economies have grown at rates of about 7% or even more. That is because they diligently developed new types of businesses and successfully diversified their export base.   For example in recent years China has added 70 new products for exports while Sri Lanka has only added 7 products.   Hence there was a need to reaccelerate the Sri Lankan economy.

 

Sri Lanka’s main problem is the inability to move from the production of comparatively simple products such as apparel into technologically more advanced sectors. The success of countries such as Vietnam was their capacity to move from apparel to sectors such as electronics and machinery production, even though they had started with apparel production at the same time as Sri Lanka said Hausmann, This is an observation regularly made by the Sri Lankans themselves. It is nothing new.

Economies grow by adding new products and services to their production portfolio and not by producing more of the same kinds of products argued Prof. Hausmann. The key to such diversification is access to know-how, but know-how often has to come from abroad. This is because it is often easier to move brains to new countries than to move new know-how into brains. In the experience of Singapore, India, Vietnam and most other dynamic economies,

Hausmann says economic development in present day Sri Lanka can only come from outside Sri Lanka. No economy can achieve a transformation using only the knowhow of citizens who have never left the country, said Hausmann. Successful economies are those which have integrated foreign migrants and their own diaspora into their societies. Rather than fearing foreigners, they develop an attitude of pride in the fact that people born elsewhere want to become part of them.

Sri Lanka may have the talent and the people for the current economy but does it have the talent and the people for the economy it wants to have?” Hausmann questioned. To get there, Sri Lanka will need to open up for more inflow of foreign know-how the way all prosperous countries have done already.

The foreigners who move tended to create more jobs though the common perception was that they ‘stole’ jobs. An apparel manufacture in Bangladesh was pioneered by Desh Garments in 1977, in a joint venture with Daewoo, which took 126 workers of various disciplines to train in their country. By 1988, ex-Desh workers had set up 56 companies in Bangladesh.

Sri Lanka industries should be initiated and run by foreigners, says Hausmann.   Examples of such success stories are given. In Sri Lanka, Camso-Loadstar, now a global solid rubber tyro company, was founded by  an immigrant from Belgium, Pringiers  teaming up with a local partner, Jinasena group. It is today, the world’s biggest solid tyre operation. The two largest garment export firms were started by descendents of immigrants from Gujarat, The rapidly-growing IT sector is bolstered by the connections that Sri Lankan entrepreneurs made while living in Silicon Valley and elsewhere. Yet in spite of their transformational impact in the past, there remain significant barriers and disincentives to immigration, return migration in Sri Lanka today.

What Hausmann is saying is that the local industrialist residing in Sri Lanka cannot initiate any new industries.  He is   too inward looking. The local workforce cannot do the work needed by the industry, either.  They are too stupid. Outsiders must come in and take over. 

Hausmann’s team had done a comparative study reviewing immigration laws of Hong Kong, Singapore, Indonesia, Thailand, Vietnam and Saudi Arabia. More economically advanced have sophisticated immigration systems that have moved from being systems that tightly controlled the entry of foreign workers, talent and capital, to systems that promote their entry, he said. They had a wide variety of visas for skilled, semi-skilled, trainees, managers and entrepreneurs. There were talent visas

Sri Lanka immigration system is very restrictive.  Other countries are transitioning from systems that just authorize immigration to those that promote it selectively, Sri Lanka has restrictions galore including no path to permanent residency or citizenship, unlike the countries that have become prosperous fast.  This is a feature that is quite unique, said Hausmann. Sri Lanka could grow fast with immigration law reform,

Sri Lanka needs to adopt progressive immigration policies to encourage foreign expertise through immigration. The current immigration system makes it difficult for Sri Lankan firms to hire foreign professionals. It also makes it nearly impossible for potential new entrepreneurs to migrate into the country to establish new firms.

Sri Lanka needs to provide a path to residency and allow highly skilled foreign nationals to become citizens, not only by simplifying cumbersome visa procedures, also creating more visa categories. If there is a path to residency, more skilled workers will come. Currently there were just 10,000 foreign workers in the country or approximately one person out of 540. This is in contrast with Australia where 27% of the population is of foreign origin.

The Board of Investment (BOI) makes it easier for BOI firms to hire foreign employees, but other immigration regulations make Sri Lanka a less attractive work destination. Spouses of foreigners need ministerial-level permission to work in Sri Lanka; foreign experts are not allowed to move across firms, as visas are specific to an employment relationship; and they cannot aspire to permanent residence, let alone citizenship.

One hurdle facing many worker visa applications is obtaining approval from the corresponding national association for the profession. For a non-BOI firm hiring foreign experts is much harder. The overwhelming majority of Sri Lankan companies are non-BOI.

Hausmann admits there is resistance to immigration. . ‘It doesn’t matter what level of migration is, everybody complaints’ .Australians are at 27 percent migration and they think it is too high. Panamanians are at 4.7 percent migration and they think it is too high. Sri Lankans are at 0.1 percent migration and they think it is too high.

If the United States had Sri Lankan immigration policies, Silicon Valley would not exist, given that 57% of its STEM workers are foreign born. Another 25% come from states other than California. Only 18% were born in California, which is a state with twice the population of Sri Lanka (and the U.S. population is 15 times that of Sri Lanka). (continued)

2 Responses to “YAHAPALANA AND INDUSTRIALISATION Part 3”

  1. Christie Says:

    ” Sri Lankans are at 0.1 percent migration and they think it is too high.”

    All our Indian Parasites are migrants? What have they brought us Sinhalese.

    Our problem is India and Indian Colonial Parasites.

    They run our economy. politics and was our brains.

  2. Christie Says:

    I like your last para.

    Silicon valley evolved from Yanks. IT pioneers were British then Yanks or both at the same time.

    Indian parasites were just coders who had a free ride like they always do on the back of Yanks and the British.

Leave a Reply

You must be logged in to post a comment.

 

 


Copyright © 2018 LankaWeb.com. All Rights Reserved. Powered by Wordpress